Pratim Ranjan Bose
The weak financial status of
electricity distribution companies (DISCOM) proves to be a major embarrassment
for the Narendra Modi government of BJP.
The embarrassment is not
limited to the miserable failure of UDAY (Ujwal Discom Assurance Yojana) to
bring any lasting change in the operational performance of DISCOMs, who had
misused another – the third or fourth since 2003 - debt-restructuring
opportunity.
What is more worrying is, much
of the good work done at the fag end of the UPA-II to prevent bankrolling of
the revenue gap of DISCOMs – following recommendations of the as Shunglu panel in December 2011 – stands
undone.
According to a recent report
submitted by a committee - which was formed by the ministry of power and, was
headed by the chairperson of the Central Electricity Authority (CEA) - banks
are once again financing unbankable DISCOMs to ensure electricity supply.
The “Draft report of the
committee on delayed payments by DISCOMs to Gencos/IPPs”, submitted in May 2019, pointed out that cash-starved DISCOMs are managing the
situation by arm-twisting Gencos and bankrolling their finance gap.
The report indicated that most
of the DISCOMs are not eligible for fresh finances if banks follow the
criterion for maximum permissible limit. However, they keep enjoying the
benefit, simply due to the ruling political support and without any sort of
guarantee from the States which was objected by Shunglu panel.
“Most of the DISCOMs would not
be eligible for any bank finance if Banks follow this criterion strictly.
However, in view of the fact that most of the Discoms are government owned and
have a long-term relationship with the banks, the latter extend limited funds
to the Discoms” the report said.
The committee identified that
as on March 31, the total outstanding dues of generating companies was Rs
40,909 crore, up by nearly 70 per cent in a year. This is excluding another Rs
15,000 crore outstanding of the RE sector.
Of the Gencos, IPPs
(Independent power producers) are the worst affected with Rs 15835 crore
outstanding. Karnataka (Rs 5158 crore), Uttar Pradesh (Rs 4934 crore),
Telangana (Rs 4801 crore), Andhra Pradesh (Rs 4539 crore), Tamil Nadu (Rs 4381
crore) and Maharashtra (Rs 3153 crore), together contributing about 66 per cent
of the outstanding dues. Not to mention that UP and Maharashtra are BJP ruled.
Andhra Pradesh was ruled by NDA partner for two out of three years of the
launch of UDAY.
Surprisingly excepting for two
months, the DISCOMs never made full payment against the monthly power purchase,
over the last fiscal (2018-19). Excepting Gujarat, Rajasthan and Haryana
(partly), the DISCOMs of all major States are earning less than the cost of
power. This is irrespective of the fact that the cost of power ruling low due
to over-supply situation.
A major failure
Energy occupied much of the
time of Modi1.0. The government did an excellent job in scrapping theRangarajan formula for natural gas pricing, that would have offered windfall gains to domestic
producers, and replacing it by a more realistic methodology.
Deregulation of petrol, diesel prices was a huge favour to the economy. As was amply proved during the recent
spike in crude prices; India adjusted well to market-driven pricing of
fuel. The era of subsidies and ‘oil bonds’ are over. Thrust to the
national gas grid and city gas distribution were the right steps.
But, problems in coal and power
are hardly over. The domestic coal production surely increased at a greater
speed than in the past. But dependence on Coal India increased manifold, as the
captive coal mining sector literally collapsed. The coal block auction failed
to live up to the expectation. Private Commercial mining is yet to take
off.
The situation is worse in the
electricity sector. Some of them like stressed coal-based power generation
assets, are legacy issues and, stems from the over-supply situation. The
generation scene got more complex due to the fast increase in RE (renewable
energy) capacity, particularly solar capacity, which now reached a significant
30GW or 8.5 per cent of the total (350GW). It would be wrong to blame the
government for fast forwarding the National Solar Mission targets. The move was
required to keep pace with the global power technology changes and the rising
concern over climate change.
But where the government failed
miserably is ensuring good health of DISCOMs for the sustainability of its
power-for-all agenda. As is now amply proved the hype created about UDAY,
launched with fanfare in November 2015, was thoroughly misplaced. The
weaknesses became apparent when Jharkhand – the first State to sign up for UDAY
– piled up a huge outstanding to the genco, Damodar
Valley Corporation, within a year. But the government ignored the alarm
bell.
Finding a shortcut?
It is common knowledge that the
lasting solution to the problem lies in broad spectrum reforms. With Modi2.0
coming to power with a greater majority, there is a definite opportunity for
such reforms too.
However, if the recommendations
of the draft report are of any significance; the ministry appointed committee
(appointed in Februray 2019, before the General election) may be looking at
penalizing the fuel supplier, Coal India Ltd (CIL), for the failures of the DISCOMS
and State level tariff regulators.
The committee wants, CIL to
payment forms for coal purchases through e-auction more flexible.
According to the committee, CIL now takes a minimum of four months to supply
the fuel purchased from e-auction. It also urged DISCOMS to pay 25 per cent of
the anticipated power bill in advance to Gencos.
Will this solve the problem?
Unlikely. Discoms will pay 25 per cent and delay the rest. Only CIL, being a
State-owned company, will comply, if asked to.
***
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